HSBC launches its first credit cards in China
Bank targeting three million users, but will need to overcome competition from mobile payment providers
HSBC will begin issuing credit cards in China on Monday, the first time that the bank has done so in its own right, marking the latest stage in its expansion in the Pearl River Delta region.
HSBC currently has a franchise of its premier banking operations in China and offers mortgages. It plans to introduce personal loans on a trial basis in the country in the first half of 2017, subject to regulatory approval.
“We have definite aspirations to be a significant player in China,” said Kevin Martin, HSBC’s head of retail banking and wealth management in Asia-Pacific.
HSBC will continue to offer joint branded credit cards with Shanghai-headquartered Bank of Communications, in which it holds a 19 per cent stake.
The bank has set itself a short- to medium-term target of three million credit cards.
“In general, demand for credit cards in China is still growing, and our research indicates that a significant proportion of the Chinese population does not have a credit card,” said Albert Chan, head of Accenture’s financial services business in China.
“We expect, however, that future growth of credit cards will face challenges from mobile payment services. Our point of view is that banks need to define compelling digital value propositions around credit cards to appeal to digital consumers in China,” Chan said.
Tencent’s WeChat app, and Alibaba’s Ant Financial offer popular payment options as well as a variety of other financial services, and have broadly excluded mainland banks from the mobile payment space.
HSBC says customers of its new credit cards can access card services via WeChat, and that payments can be made through China UnionPay online and Alipay-linked mobile payments.
Two other foreign banks which operate credit cards in China, Citi and Bank of East Asia, have also linked their systems with WeChat and Alipay, and Citi says that about 40 per cent of its credit cards in China are now paid through Alipay.
“The great benefit of starting now and not five years ago, is we aren’t competing with the ecosystem,” Martin said. “Our view is rather than compete with Alibaba or Tencent, we want to embed ourselves into WeChat.”
An additional challenge for running credit card operations on the mainland is concern about regulatory changes. In November, China’s media reported that dual currency credit cards would not be permitted, a move which some analysts said was an attempt to stem capital flight.
Martin said that HSBC had always planned to issue separate US dollar and yuan-denominated cards, but described the point as “moot”, since dual currency cards were no longer permitted. He also said that regulatory changes were not a major worry.
“We’ve been in credit cards a long time, and whatever market you’re in the regulations change as social dynamics do,” he said, offering recent changes in Indonesia and Malaysia as examples.
Along with HSBC’s expansion in the Pearl River Delta, Hong Kong banks’ exposure in China has increased this year.
Exposure to China stood at 27.6 per cent of Hong Kong’s system-wide assets at the end of June, according to figures from Fitch, which described that exposure as “the biggest asset-quality risk for Hong Kong’s banks”, though it noted that lending in China had performed relatively well to date.
Martin said default rates among Chinese consumers were traditionally low, and referenced People’s Bank of China figures that said the 180-day delinquency ratio for China’s credit card market was 1.51 per cent as of the third quarter of this year.